A recently listed third-party litigation funder is expecting to invest £50m in cases over the next year, Legal Futures can reveal, as separately Buford Capital, the largest funder in the world, enters the UK market by buying leading after-the-event (ATE) provider Firstassist Legal Expenses.
Argentum Capital – which has been investing in UK litigation since 2009 – recently listed on the Channel Islands Stock Exchange, making it the fourth listed funder after Burford and Juridica on AIM, and IMF in Australia.
Duane McGaw, London-based chief operating officer of Argentum Investment Management, which manages the fund, said the listing would create “scaleability” because it could continuously raise money to invest as required; other funders are restricted by closed funds that limit how much they can invest.
He said that with the opening up of the UK market to more funders – three have entered in recent weeks – “the growth potential is enormous… we want to develop this market”. Argentum hopes to have committed £50m by this time in 2012, with much more to come in following years, he said. It hopes to target big cases.
He urged solicitors to take up third-party funding, warning that “if the opportunities are not presenting themselves in the UK, we will go and find them elsewhere”.
Firstassist is being sold by Equistone Partners Europe, run by the former executives of Barclays Private Equity. Subject to Financial Services Authority approval, Guernsey-based Burford is paying £10.3m, and up to £7m in an earn-out payment in 2014 depending on performance.
Firstassist expects its 2011 EBITDA (earnings before interest, taxes, depreciation and amortisation – a measure of cash flow) to exceed £6m, and the full earn-out will be paid if its EBITDA for 2012 and 2013 combined is £19.3m. A lower earn-out will be triggered if this is not reached, and nothing will be paid if the combined EBITDA is below £14.5m.
Burford chairman Sir Peter Middleton, the former chairman of Barclays, will also become chairman of Firstassist.
Firstassist’s ATE activities are unaffected by the acquisition and it will now also be applied to Burford’s third-party funding where appropriate. Firstassist’s ATE policies will continue to be underwritten by Great Lakes Reinsurance (UK) plc, a subsidiary of Munich Re.
Firstassist employs 32 people and has a book of 3,000 active cases. Managing director Peter Smith said the aim was to “create a one-stop shop for litigation funding and insurance”. He told Legal Futures: “As part of the Burford empire, we will find, risk assess and hopefully manage cases that need funding.”
The process of risk assessing for ATE is “extremely similar” to that for third-party funding, he explained.
Though listed on AIM, Burford – which has raised around £200m in recent years – has until now focused on funding US litigation and international arbitration. Chief executive Christopher Bogart said entering the UK market was a long-held strategic goal and that buying a “cash flow-positive” and well-known business like Firstassist was a more appealing option than starting up from scratch. He said the “substantial regulatory tilt in favour of litigation funding” makes the UK “very hospitable”.
Firstassist predicts that the Jackson reforms will stimulate demand for external funding to support higher-value litigation, coupled with renewed demand for ATE protection.